Operating Guidelines for Payment Banks issued by RBI

Operating Guidelines for Payments Banks have been issued by RBI on 6th October 2016. Gist of operating guidelines is given below:

• Bank deposits – PBs can accept only savings and current deposits. The aggregate limit per customer shall not exceed ₹100,000.
• PBs will not be permitted to lend to any person including their directors. However, PBs may lend to their own employees out of the bank’s own funds, as per a Board approved policy outlining the caps on such loans.
• Bank charges, lockers, nominations, facilities to disabled persons, etc. – The extant provisions in this regard as applicable to scheduled commercial banks, shall be applicable to PBs as well.

• PBs may make arrangements with other scheduled commercial bank for amounts in excess of the prescribed limits, to be swept into an account opened for the customer at that bank.
• Payments Banks need not issue passbooks for the deposit accounts;
• Payment Banks may provide statement of account in paper form on request on chargeable basis, or otherwise;
• Payment Banks may provide account information through multiple user friendly modes such as SMS and/or internet banking; and
• Payment Banks should provide electronic confirmation through SMS/e-mail/printed proof for each account transaction.
• KYC requirements

1. PBs may decide not to take the wet signature while opening accounts and instead rely upon the electronic authentication/confirmation
2. PBs should ensure that every customer, including customers of mobile companies on-boarded comply with the KYC regulations, which could include simplified account opening procedures. If the KYC done by a telecom company, which is a promoter / promoter group entity of the PB, is of the same quality as prescribed for a banking company, PBs may obtain the KYC details of the customer from that telecom company.consent.

• Regarding Foreign exchange business Payments Banks shall comply with all the conditions attached with the AD Cat II licence that will be issued by the FED, CO. and implement the provisions of Foreign Contribution (Regulation) Act, 2010 (As applicable to commercial banks).
• Investments in deposits of an individual scheduled commercial bank shall not be more than five per cent of the total outside liabilities of the PB.
• PBs will be permitted to participate in the call money and CBLO market as both borrowers and lenders. These borrowings would, however, be subject to the limit on call money borrowings as applicable to scheduled commercial banks.
• PBs will not be permitted to undertake any para-banking activity except those allowed as per the Licensing Guidelines and the related FAQs issued.
• At the time of submitting application for licence, the PBs should submit to RBI a list of financial products they intend to offer with a clear description.
• Any new products proposed to be introduced thereafter should be intimated to RBI for information. If required, RBI may place suitable restrictions on the design, functioning, or other features of the product including discontinuing the product.
• The provisions regarding market risk management for PBs will be as applicable to commercial banks. PBs will be permitted to use derivatives only for the purpose of hedging their foreign currency positions arising out of the activities conducted under the AD Category II authorization.
• Payment Banks should implement the operational risk management requirements, issued by RBI for scheduled commercial banks for operational risk, including collection of operational loss data.
• The provisions regarding liquidity risk management shall be as applicable to scheduled commercial banks, with suitable enhancements to take into account the liquidity risk profile of PBs.
• The provisions regarding strategic and reputational risk management shall be as applicable to scheduled commercial banks, with suitable enhancements to take care of the reputational risk arising from use of agents.
• The provisions regarding internal controls, audit and compliance by the PBs shall be as applicable to scheduled commercial banks, with suitable enhancements to take care of the ICT related aspects and operations through agents.
• For PBs, the CRR and SLR requirements and the various disclosures and statutory/regulatory reports will be as applicable to commercial banks
• The extant provisions in this regard as applicable to private sector banks, as covered in the Master Directions on Issue and Pricing of shares by Private Sector Banks and Master Directions on Ownership in Private Sector Banks shall be applicable to PBs as well, except what is provided in the existing regulation contained in the Licensing Guidelines.
• Corporate Governance- The extant provisions as applicable to banking companies shall be applicable to PBs as well. Specifically in the case of converting entities, the terms and conditions of appointment of existing Directors will be grandfathered till completion of their present term.
• Constitution and functioning of committees of the board, management level committees, remuneration policies – The extant provisions in this regard as applicable to private sector banks, shall be applicable to PBs as well.
• The annual plans for opening of physical access points by the PBs for the initial five years would need prior approval of RBI. The first of such plan shall be submitted to RBI before commencement of business. After the initial stabilisation period of five years, and after a review, RBI may liberalize the requirement of prior approval.
• An employee of the PB should be available for sufficient duration, at a fixed location known to the customers at the district level, to attend to customer grievances and support the agent supervision. This fixed location may also be used to conduct the banking business of the PB, and it will be considered as a physical access point for the purposes of assessing the requirement of opening at least 25 per cent physical access points in rural centres.
• The PBs can engage all permitted entities including the companies owned by their business partners and own group companies on an arm’s length basis as “BCs”. These companies can have their own branches managed by their employees operating as “access points” or may engage other entities/persons to manage the “access points” which could be managed by the latter’s staff. In the above cases, from the regulatory perspective, the bank will be responsible for the business carried out at the ‘access points’ and the conduct of all the parties in the chain regardless of the organizational structure including any other intermediaries inserted in the chain to manage the BC network.
• Inter-operability of the BCs will be allowed except for opening of savings and current accounts.
• BCs cannot undertake any offline transactions. Consequently, BCs cannot undertake transactions if there is no internet connectivity.
• The PBs will be exempted from the requirement of having a base branch for a certain number of BCs/access points managed by BCs as currently stipulated in the RBI guidelines to scheduled commercial banks.
• In cases where a PB is acting as the BC for a bank, the BC engaged by the PB shall not open deposit accounts for the partner bank for whom the PB acts as the BC or undertake KYC documentation for that bank.
• All RBI and BR Act provisions and RBI directions relating to minimum balance, inoperative accounts, unclaimed deposits including transfer of such deposits to the Depositors Education and Awareness Fund maintained by RBI on regular basis, nominations, cheques/drafts, etc., will be applicable to the PBs.
• PBs may, at their option, exchange mutilated and defective notes at their branches.
• All customer grievance issues related to a particular access point should be addressed both at the access point and at the district level location.
• PBs will be covered by the Banking Ombudsman (BO) Scheme.